GM Delays Deal To Build Electric Pickup Trucks With Startup Nikola Motors
Download mp3 (6.98 MB)
General Motors has pushed back the signing date on its pending partnership with Phoenix-based electric car company Nikola Motors. The Tuesday announcement came just one day before the deal was originally set to close.
Despite allegations of fraud, GM has said it still intends to complete a 10-year deal with Nikola Motors to jointly build electric pickup trucks and hydrogen fuel cell tractor-trailers. But, the deal will change. In a statement, GM representatives said it would require some renegotiation noting "continuing discussions" with Nikola.
Shares in electric and hydrogen-powered truck startup Nikola fell more than 7% Tuesday after General Motors cast doubt on whether a $2 billion partnership would close as scheduled.
The tentative agreement announced Sept. 8 called for GM to get an 11% stake in Nikola in exchange for engineering and building Nikola’s Badger hydrogen fuel cell and electric pickup truck. GM would also supply batteries for other Nikola vehicles including heavy trucks.
But on Sept. 20, Nikola founder and Chairman Trevor Milton resigned after Hindenburg Research, a company that’s betting Nikola stock will drop, accused Nikola of fraud. Nikola denies the allegations and called them misleading.
Hindenburg said Nikola’s success was an “intricate fraud,” including a video showing a truck rolling downhill to give the impression it was cruising on a highway, and stenciling the words “hydrogen electric” on the side of a vehicle that was actually powered by natural gas.
The Securities and Exchange Commission and the Justice Department are reportedly investigating. GM has said it did proper due diligence before entering the partnership.
With Nikola shares now trading below $18 a share, GM’s potential stake is worth less than half the initial value.
Further developments came on Sept. 29, when the Salt Lake City police received complaints about former Nikola chairman Milton.
Two women are accusing the former CEO of sexually assaulting them. One accusation is from 1999 while the other is from 2004.
The Show spoke with Ben Foldy, an auto industry reporter for the Wall Street Journal, about how situation looks for Nikola.
MARK BRODIE: So what's going on? Why, why did GM decide — I assume the decision was GM's not to follow through and close the deal today? What led to that decision?
BEN FOLDY: I think it's a little unclear. I think when the deal was announced, it was said that today was a target date for ending the deal or closing the deal, rather. I think obviously that that deal was announced before all of the short-selling report allegations came up. And I think like a few things going on at Nikola, it probably, you know, this was not a foreseen issue, all of these questions coming up. And I think everybody is just kind of waiting a little longer. The deal is not necessarily dead or anything like that. I think it's just people are kind of doing slightly more diligence or just making sure that they want to proceed.
BRODIE: Well, is there any reason to believe that GM will pull out completely?
FOLDY: I haven't seen any reason to, to think that. GM has said so far that they are still working towards the deal. I think so, yeah.
BRODIE: Safe to say, though, that maybe some of the terms might be different as GM continues, as you reference doing more due diligence here?
FOLDY: I mean, that's definitely a possibility. I mean, one thing that may be under consideration is under the deal is it was announced back in early September, GM would take an 11% equity stake that they at the time valued for about $2 billion. I mean, since then, the stock has lost more than half its value. So if that 11% equity stake was worth $2 billion in early September, it'd be worth $1 billion now, or roughly. So that's possibly something that could be being discussed or reevaluated.
BRODIE: How important is this deal ultimately happening to Nikola, and how much of a problem for Nikola is it that the deal is not happening now?
FOLDY: I think this is definitely — so when Nikola reported their quarterly earnings back in August, they said they had three main objectives for the end of the year. One was a big truck order, which they got. One was announcing a partner to build its pickup truck, which was part of the GM deal, and then another was announcing a partner to build hydrogen fuel stations. I reported last week that the last of those three was also kind of at least stalled by some of the stuff that's come up. So this is definitely a big, you know, it is a critical objective for them. It is an important relationship. Nikola's business model really depends on teaming up with other companies who do either specific parts or kind of components or, you know, stations. And so if what's happened over the past couple of weeks means that Nikola has more trouble in finding or keeping those partners, I think that could be a very big risk for their business model.
BRODIE: Is there reason to think that what's going on now could be a harbinger of problems to come for Nikola?
FOLDY: I mean, I think that anytime your stock loses half its value, that's probably already a problem. But I think, yeah ... they've got some explaining to do, I think. And Wall Street analysts have basically said that they still kind of believe in the vision, but the company has a lot to do to kind of regain credibility with investors. And in Nikola's case, those investors aren't just big institutional investors or even retail investors. I mean, those are also the partnership companies, which to this point have mostly taken, also, stakes and invested into Nikola directly.
BRODIE: Right. All right. We'll have to leave it there. That is Ben Foldy, an auto industry reporter for the Wall Street Journal. Ben, thanks for your insights. Appreciate it.
FOLDY: Thanks so much.
